Formulary Tier

A formulary tier is the cost level assigned to a prescription drug on your health plan's formulary (its approved drug list). Most plans organize medications into three to five tiers, with each tier carrying a different cost-sharing amount; the lower the tier, the less you pay out of pocket.

A typical tier structure looks like this: Tier 1 includes preferred generic drugs with the lowest copay (often $5–$15). Tier 2 includes non-preferred generics or preferred brand-name drugs at a moderate copay ($30–$60). Tier 3 covers non-preferred brand-name drugs at a higher copay ($60–$100+). Tier 4 or Tier 5 is the specialty tier, where medications are often billed as coinsurance (25%–50% of the drug cost) rather than a flat copay, and the costs can reach hundreds or thousands of dollars per prescription.

Your plan's formulary determines which tier a drug falls into. The same medication can be on different tiers with different insurers, so it's worth checking your specific plan's formulary before choosing a plan, especially if you take ongoing medications.

If your doctor prescribes a drug on a higher tier when a lower-tier alternative exists, your plan may require step therapy (try the cheaper drug first) or your doctor can request a formulary exception. An exception asks the plan to cover a higher-tier drug at a lower-tier cost due to medical necessity.

During Open Enrollment, check where your medications fall on each plan's formulary tiers. A plan with a slightly higher premium but lower drug tiers for your medications could save you significantly over the year.